PURUSHOTTAM AND ANR v. SHIVRAJ FINE ART LITHO WORKS AND ORS

Citation: [2006] SUPP. 8 S.C.R. 524

Court: Supreme Court of India

Bench: B.P. SINGH, ALTAMAS KABIR

Case summary

PURUSHOTTAM AND ANR v. SHIVRAJ FINE ART LITHO WORKS AND ORS.pdf

Judgment text

PURUSHOTTAM AND ANR v. SHIVRAJ FINE ART LITHO WORKS AND ORS . -. NOVEMBER 7, 2006 [B. P. SINGH AND ALTAMAS KABIR. JJ. ] Indian Partnership Act, Section 69(2)-bar under-scope ofexplained The question involved in the instant appeal was whether a suit by an unregistered firm to enforce a right not arising from a contract to which it was a party or arising from a contract entered into by it in connection with .. its business, but for the enforcement of a right arising out of a contract / entered into by its partner when the firm was his proprietary concern which he continued to the partnership when constituted was maintainable against third party and not barred under the provisions ofsection 69(2) of the Indian Partnership Act Allowing the appeals, the court HELD. 1. 1 Once registration is granted, even though after the filing of the suit, the suit should be held to be maintainable as from the date on which registration is granted subject to the law oflimitation.

Subsequent registration of the firm would not cure the initial defect in the filing of the suit. (527-F-G; 528-D] Mls. Shreeram Finance Corporation v. Yasin Khan and Ors, (1989] 3 SCC 476; D. D. A. v. Kochhar construction Work andAnr. , (1998) 8 SCC 559 and U. P. State Sugar corporation ltd v. Jain Construction Co. and Anr. , (2004) 7 sec 332, relied upon. 1. 2. After coming into the existence of the partnership and having transferred to the said partnership all his assets and liabilities of his proprietary concern, the erstwhile proprietor has no subsisting exclusive right to enforcl; the liability against others since such rights as he had as the proprietor vested in the partnership, Such a partner in his personal capacity could not sue the respondent firm. for the amount in question, ifthe firm of which he was a partner was for reason of non-registration unable maintain a suit.

He can not, therefore, either file a suit for claim any relief in the suit filed by the partnership asserting his right as the erstwhile proprietor. [529-F-G) Addanki Narayanappa and Anr. v. Bhaskara Krishnappa (D) olchand was a partner was the duly registered proprietor ofthe trademark Haldiram Bhujiawala. On dissolution of the firm on 16. 11. 1974 in terms of the deed of dissolution, Moolchand became the sole proprietor ofthe trademark for the whole country except State of West Bengal. Smt. Kamla Devi, another partner, who was the wife of R. L. Aggarwal a brother ofMoolchand, was given ownership of the trademark rights for West Bengal. Upon the death of Moolchand in 1985 his four sons got themselves recorded as joint proprietors of the trademark. Three of th'! m formed a partnership in the year 1983 and were running a shop in Chandni Chowk, Delhi. In the meantime on 10. 10. 1977 R. L.

Aggarwal and his son applied in Calcutta for registration of the same trademark in their name claiming to be full owners of the trademark, without disclosing thl" dissolution deed of 16. 11. 1974. In these circumstances a suit wac; filed by the partnership firm with three of the sons of Moolchand as partn_ers thereof being the first plaintiff. The second plaintiff in the suit was the fourth son of Moolchand. They claimed the relief of injunction restraining the defendants from using the said trademark, damages, and for destruction of the material etc. The defendants filed an application under Order 7, Rule 11, CPC for summary dismissal ofthe suit since PlaintiffNo. I partnership firm vias not a registered partnership firm on the date of the filing of the suit. The Trial Court dismissed the application and so did the . appellate bench of the High Court of Delhi. The defendants appealed to this Court by Special Leave. . Two questions were framed which arose for consideration.

"(i) Whether Section 69(2) bars a suit by a firm not registered on the date of suit where permanent injunction and damages are claimed in respect of trademark as a statutory right or by invoking common law principles applicable to a passing-off action? (ii) Whether the words "arising from a contract" in Section 69(2) refer only to a situation where an unregistered firm is enforcing a right arising from a contract entered into by the firm with the defendant during the course of its business or whether the bar under Section 69(2) can be extended to any contract referred to in the plaint unconnected with the defendant, as the source of title to the suit property? " The first question was answered relying upon the law laid down by this Court in Raptakos Brett & Co. Ltd v. Ganesh Property, [l998] 7 SCC 184 that the bar in Section 69(2) of the Act did not operate to bar a suit by an unregistered firm seeking enforcement of a statutory right or a common law right.

It was held that a passing off action being a common law action based on tort, and not on contract, Section 69(2) did not apply. The reliefs of permanent injunction and damages were claimed on the basis of infringement of registered trademark. Thus the suit was held to be one based on statutory right under the Trade Marks Act, and therefore not barred by Section 69(2). Counsel for the respondents contended before us that having answered the first question in favour of the plaintiffs, it was wholly unnecessary for the disposal of the appeal to consider the second question formulated by this Court. Therefore, any observation made or principle enunciated, in relation to the second question was at best obiter, and not a binding precedent. We shall assume in favour of the respondents that the observations made and principles laid down are obiter ami therefore not a bind precedent.

Even so that does not preclude this Court from appreciating the reasons given for the principles laid down, and if the reasoning appears to this Court to be cogent, and merit acceptance, the same may be accepted by this Court as its own and applied to the case before it. In Haldiram Bhujiawala and Anr. (supra) this Court noticed the recommendations made by the Special Committee in its report which was considered by the legislature while enacting the Partnership Act, 1932. The Committee recommended that registration of firms be made optional as it considered making registration compulsory too drastic for a beginning in India. It was proposed that registration should lie entirely with the discretion of the firm or partner concerned, but any firm which was not registered will be unable to enforce its claim against third parties in the civil court; and any partner who is not registered will be unable to enforce his claims either against third parties or against fellow partners.

Paragraphs 18 and 19 of the Report read ·as follows :- "18. Once registration has been effected the statement recorded in the register regarding the constitution ofthe firm will be conclusive proof of the facts therein contained against the partners making them and no partner whose name is on the register will be permitted to deny that he is a partner with certain natural and proper exceptions which will be indicated later. This should afford a strong protection to persons dealing with firms against false denials of partnership and the evasion of liability by the substantial members of a firm. 19...... On the other hand, a third party who deals with a firm and knows that a new partner has been introduced can either make registration of the new partner a condition for further dealings, or content himself with the certain security of the other partners and the chance of proving by other evidence, the partnership of the new but unregistered partner.

A thir<j party who deals with a firm without knowing of the addition of a new partner counts on the credit of the old partners only and will not be prejudiced by the failure ofthe new partner to register". It would thus appear that registration of a firm was conceived as a protection to third parties dealing with a partnership firm. Registration ensured the certainty of existence of the firm and its membership, so that later an unsuspecting third party contracting with the firm may not run the risk of being defeated on discovery that neither the partnership firm nor its partners existed in fact. On the other hand, an unregistered firm could not bring a suit for enforcing its right arising from a contract. In Raptakos Brett & Co. ltd.

(supra) this court after noticing Section 69 of the Act observed : "A mere look at the aforesaid provision shows that the suit filed by an unregistered firm against ~ third party for enforcement of any right arising from a contract with such a third party would be barred at its very inception. To attract the aforesaid bar to the suit, the following conditions must be satisfied: (i) That the plaintiff-partnership firm on the date of the suit must not be registered under the provisions of the Partnership Act and consequently or even otherwise, the persons suing are not shown in the Register of Firms as partners of the finn, on the date of the suit. (ii) Such unregistered finn or the partners mentioned in the subsection must be suing the defendant-third party. (iii) Such a suit must be for enforcement of a right arising from a contract of the finn with such a third party". Relying upon the aforesaid analysis this Court in Haldiram Bhujiawala and Anr.

(supra) held that the contract contemplated by Section 69 of the Act is the contract entered into by the finn with the third party defendant. The contract by the unregistered finn referred to in Section 69(2) must not only be one entered into by the firm with a third party defendant, but must also be one entered into by the plaintiff firm in the course of the business dealings of the plaintiff finn with such third party defendant. With respect, we find ourselves in complete agreement with the principles enunciated in Haldiram Bhujiawala and Anr. (supra). Having regard to the purpose Section 69(2) seeks to achieve <l;nd the interest sought to be protected, the bar must apply to a suit for enforcement of right arising from a contract entered into by the unregistered finn with a third party in the course of business dealings with such third party.

If the right sought to be enforced does not arise from a contract to which the unregistered finn is a party, or is not entered into in connection with the business of the unregistered finn with a third party, the bar of Section 69(2) will not apply. In the instant case the contract was entered into with the respondent finn by the erstwhile proprietor of the concern namely Purushottam. The partnership firm came into existence later. The amount claimed in the suit were due to the proprietor Purushottam who carried on his proprietary business in the name and style of"Dinesh Paper Mart". When he entered into partnership with others, he contributed to the partnership by way of his contcihution to the capital, all the assets and liabilities of his erstwhile proprietary concern.

Thus, though the partnership finn, which was unregistered, became entitled A to enforce the contractual obligation of the defendant finn which it owed to Purushottam, the contract was not one entered into by the unregistered finn with a third party,,nor was it one entered into by the unregistered finn in th. e course of its business dealings with the defendants. So viewed, the bar of Section 69(2) cannot apply to the suit filed by the Plaintiff - appellants. B We, therefore, allow this appeal with costs and set aside the impugned judgment and decree of the High Court and restore that of the Third Joint· Civil Judge (Senior Division) Nagpur, in Civil Suit No. 52 of l980 dated 29. 4. 1987. BK Appeal allowed.